In answer to your questions:
1) In section 9 (Scope and Guidelines), what does the client mean by (or how does client define) "Asset Management"?
Ability to create and maintain a set of files for the site, such as images, PDF, Word, audio and video files etc. for reuse throughout the site without manual editing of the template files or CSS; ability to add images or file links within an individual page without  HTML code or d separate uploading of the file.
http://drupal.org/project/asset.
 
2) In same section under Preferred (Phase II) what does the client mean by, or how does the client define "Project Tracking"?
A simple project management system (simpler than MS Project) to track collaborative community projects, motions, resolutions, development projects etc. including task management, calendaring, resource (people) management, email. In Drupal, simple solutions like http://www.ravisagar.in/blog/project-management-drupal or by integrating http://projectpier.org/ (through a shared database?) may be ideal. Also, http://www.speedtech.it/storm
 
More powerful (but steep learning curve/overkill?) Opensource options for project management:
http://openproj.org/openproj
dotproject - http://www.dotproject.net/
PHProjekt - http://www.phprojekt.com/
Tutos - http://www.tutos.org/homepage/index.html